Canon 2004 Annual Report Download - page 34

32
FINANCIAL OVERVIEW
GENERAL
The following discussion and analysis provides information
that management believes to be relevant to understanding
Canon’s consolidated financial condition and result of
operations. References in this discussion to the “Company”
are to Canon Inc. and, unless otherwise indicated, references
to the financial condition or operating results of “Canon”
refer to Canon Inc. and its consolidated subsidiaries.
OVERVIEW
Canon is one of the world’s leading manufacturers of copying
machines, laser beam printers, inkjet printers, cameras,
steppers and aligners. Canon earns revenues primarily from
the manufacture and sale of these products domestically and
internationally. Canon’s basic management policy is to
contribute to the prosperity and well-being of the world while
endeavoring to become a truly excellent global corporate
group targeting continued growth and development.
Canon divides its businesses into three product groups:
business machines, cameras, and optical and other products.
The business machines product group has three sub-groups:
office imaging products, computer peripherals and business
information products.
Economic environment
Looking back at the global economy in 2004, although the
U.S. economy experienced a temporary slowdown in the
second half of the year due to the diminishing effectiveness of
tax cuts, the high price of crude oil, and rising interest rates,
economic growth was realized as consumer spending
increased modestly, and an upturn in corporate earnings
fueled continued growth in private-sector capital spending.
Economic growth in Europe remained moderate through
2004, held back somewhat in the second half by a sluggish
world economy combined with high crude oil prices and the
negative impact of the appreciation in value of the euro. In
Asia, China’s economy continued to achieve steady growth,
driven by strong consumer spending and increased capital
investment, while other Asian economies were also in recovery
mode. In Japan, while the economy slowed down somewhat in
the second half due to the global downward economic trend,
the economy continued to recover gradually, supported by
stable consumer spending and an increase in capital
investment.
Market environment
With respect to the markets in which Canon operates,
although sales of digital cameras slowed in Japan due to a
rising household penetration rate, demand overseas, especially
in Europe, continued to grow significantly during fiscal 2004.
Demand for network digital multifunction devices (MFDs)
remained strong, especially in the office market, fueled by the
shift toward multifunctionality and color. Although the market
for computer peripherals, including printers, grew overall,
mainly among color models, the segment experienced severe
price competition and a shift in demand for lower priced
models offering improved functionality. In the field of optical
equipment, capital spending for semiconductor-production
equipment recovered strongly owing to such factors as the
sustained high demand for memory devices resulting from
replacement demand for personal computers, and a growing
digital consumer electronics market, along with the high rate
of capacity utilization by semiconductor manufacturers.
Moreover, increased demand for liquid crystal display (LCD)
televisions fueled growth in the market for projection aligners,
which are used in the production of LCDs.
Summary of operations
Canon achieved record highs in both consolidated net sales
and net income, and a fifth consecutive year of sales and
profit growth, mainly due to a significant increase in sales of
digital cameras and color network digital MFDs, along with a
substantial increase in sales of semiconductor-production
equipment. In fiscal 2004, Canon achieved 8.4% growth in
net sales, to ¥3,467,853 million (U.S.$33,345 million), and a
24.5% increase in net income, to ¥343,344 million
(U.S.$3,301 million). Canon’s gross profit increased by 6.5%,
to ¥1,713,343 million (U.S.$16,474 million).
Key performance indicators
Following are the key performance indicators (“KPI”) that
Canon uses in managing its business. The changes from year to
year in these KPI are set forth in the table shown on page 33.
Revenues
As Canon seeks to become a truly excellent global
company, one indicator which Canon’s management places
strong emphasis on is revenue. Following are some of the KPI
relating to revenues that management considers to be
important.
Net sales is one of the KPI. Canon derives net sales
primarily from the sale of products, and providing of services
relating to its products. Sales vary based on such factors as
product demand, the number and size of transactions within
the reporting period, product reputation for new products,
and changes in sales prices. Other factors involved are market
share and market environment. In addition, management
considers an evaluation of net sales by product group
important in assessing Canon’s performance in sales in various
product groups in light of market trends.
Gross profit ratio (ratio of gross profit to net sales) is
another KPI for Canon. Through its reforms in product
development, Canon has been striving to shorten product
development lead times in order to launch new, competitively
priced products at a faster pace. In addition, Canon has
achieved cost reductions through efficiency enhancements in
production. Canon believes that these achievements have
contributed to improving Canon’s gross profit ratio, and